Korean financial groups' record half-year profit came with thinner cover for bad loans
Korea's 10 financial holding groups made a record 17.6 trillion won in the first half, up 13.7%, Financial Supervisory Service data showed. Bad loans rose to 1.03% of lending as reserves fell to 96.5% of them, so each problem loan now has less cover than it did in December.
The Investor · Invest desk
What happened
- Financial investment profit rose 2.1 trillion won on higher securities, fee and foreign exchange income, the Seoul Economic Daily reported from the FSS figures.
- Banks still produced 47.1% of combined profit, with financial investment at 24.9% and insurance at 12.3%, according to Yonhap.
- Combined assets of the 10 groups reached 4,391.4 trillion won at end-June, up 323.6 trillion won, or 8%.
- The FSS said it will press the groups to build loss-absorbing capacity ahead of a worsening economy at home and abroad.
Why it matters
- Who's exposed exposure With profit growth outside financial investment close to nil, the groups' earnings now follow stock and currency markets more closely than their loan books.
- What it costs cost Lifting coverage back to 100% would be charged against earnings, paying for the existing 3.5-point shortfall and for every new bad loan in full.
- Who has to decide decision With capital ratios up and reserve coverage down, each group has to choose whether to spend part of its first-half capital gain on provisions before bad loans rise further.
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Take the 2.1 trillion won rise in financial investment profit out of the 2.2 trillion won increase and 0.1 trillion won is left, growth of about 0.6% on last year's 15.4 trillion won [2][19]. The Seoul Economic Daily tied the investment gain to a strong stock market and wider swings in currencies and interest rates [18]. Using the FSS segment shares, which may not match the consolidated basis exactly, financial investment earned roughly 4.4 trillion won in the half against about 2.3 trillion won a year earlier [20]. The segment nearly doubled [20].
Banks earned roughly 8.3 trillion won on their 47.1% share, down from about 9.1 trillion won [21]. Two accounts of the same FSS release disagree on the banks. Yonhap credited the record partly to "the robust performances of their banking and insurance operations" [23]. The Seoul Economic Daily breakdown has banking profit down 800 billion won, with insurance up 200 billion won and specialized credit finance up 500 billion won [10]. Neither report says what drove the bank decline.
The credit figures went the other way. The nonperforming loan ratio rose to 1.03% from 0.95% six months earlier [11], and reserve coverage fell from 106.8% [4], so bad loans grew faster than the reserves held against them. Reading the reserve ratio as reserves over nonperforming loans, the product of the two puts reserves at about 1.01% of total lending at end-December and about 0.99% at end-June [22].
Capital is the counter-case. The common equity Tier 1 ratio at the eight bank holding companies rose to 13.36% from 13.15% [12], and the two non-bank holders, Korea Investment and Meritz, held 162.49% of required capital [14][8]. At 1.03%, bad loans are about one won in every hundred lent [3]. If markets hold, investment income keeps covering weaker bank earnings and bad loans level off near 1%. If markets turn, the investment gain can reverse in the same months that provisions have to catch up with bad loans, and both hits land on net profit. Or the first-half fall in coverage is timing, and it recovers as new bad loans slow.
I think the second path is the one to plan for, or rather the one the regulator is already planning for. The FSS said rising bad loans and a bigger share of market-sensitive businesses such as financial investment mean subsidiaries need tighter soundness management [15]. "We will review latent risk factors such as the expansion of high-risk assets stemming from portfolio changes within holding companies, and step up monitoring of unsound business practices," an FSS official said [17]. The groups ended June with 355 affiliates, up from 342 six months earlier [7]. The view is wrong if year-end data show coverage back above 100% and bank profit no longer falling.
What to watch
- Whether the FSS turns its push on loss-absorbing capacity into specific reserve or capital targets for the 10 groups.
- Second-half financial investment profit, if the stock market and currency swings that lifted the first half fade.
Information, not investment advice. This story is general information about companies and markets, drawn from cited reporting. It is not a recommendation to buy, sell or hold any security; check the cited sources before acting.
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What the record supports and how the coverage leans. The claims behind it follow.
Reality
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Perspective Coverage
3 publishers- Builder
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Claim ledger
Ranked by verification strength, evidence, and original report placement.
- [1]
The combined net profit of 10 financial holding firms reached a record 17.6 trillion won in the January-June period, up 2.2 trillion won, or 13.7 percent, from a year earlier, according to preliminary data from the Financial Supervisory Service.
- [2]
Combined first-half net profit a year earlier was 15.4 trillion won.
- [3]
The groups' nonperforming loan ratio was 1.03 percent at end-June, up 0.08 percentage point from six months earlier.
- [4]
The loan loss reserve ratio dropped to 96.5 percent from 106.8 percent over the same six months.
- [5]
Net income from the groups' banks accounted for 47.1 percent of the total, returns on financial investments 24.9 percent and insurance earnings 12.3 percent.
- [6]
Combined total assets stood at 4,391.4 trillion won at end-June, up 323.6 trillion won, or 8 percent.
- [7]
The companies had a combined 355 financial affiliates as of end-June, up from 342 six months earlier.
- [8]
The tally covers eight bank holding firms (KB, Shinhan, Hana, Woori, NH, iM, BNK and JB) and two non-bank holding firms, Korea Investment and Meritz.
- [9]
Net profit in the financial investment segment rose 2.1 trillion won from a year earlier on sharply higher non-bank and non-interest income from securities, fees and foreign exchange.
- [10]
Insurance earnings rose 200 billion won and specialized credit finance companies gained 500 billion won, while banking profit fell 800 billion won.
- [11]
The nonperforming loan ratio six months earlier was 0.95%.
- [12]
The common equity Tier 1 capital ratio at bank holding companies under BIS standards rose 0.21 percentage point to 13.36% from 13.15% at the end of last year.
- [13]
Reserve coverage is 3.5 percentage points short of 100%.
- [14]
At non-bank holding companies, the ratio of equity capital to required capital rose 0.83 percentage point from the end of last year to 162.49%.
- [15]
With bad loans rising and market-sensitive segments such as financial investment taking a larger share, the FSS said subsidiaries need tighter soundness management, stronger consumer protection and reinforced internal controls.
- [16]
The FSS said it will press financial holding companies to strengthen soundness management, including building up loss-absorbing capacity, in preparation for a worsening economic environment at home and abroad from global interest rate increases and prolonged geopolitical risks.
- [17]
"We will review latent risk factors such as the expansion of high-risk assets stemming from portfolio changes within holding companies, and step up monitoring of unsound business practices," an FSS official said.
- [18]
A strong stock market and wider swings in currencies and interest rates boosted non-interest income.
- [19]
Excluding the 2.1 trillion won financial investment gain, combined profit rose about 0.1 trillion won, growth of about 0.6%.
- [20]
Financial investment earned roughly 4.4 trillion won in the half against about 2.3 trillion won a year earlier, nearly doubling. Approximate, since segment shares may not be on the consolidated basis.
- [21]
Banks earned roughly 8.3 trillion won in the half, down from about 9.1 trillion won a year earlier, a decline of about 9%.
- [22]
Treating the loan loss reserve ratio as reserves over nonperforming loans, reserves equalled about 1.01% of total lending at end-December and about 0.99% at end-June.
- [23]
Yonhap reported the record profits came "thanks to the robust performances of their banking and insurance operations, as well as stellar returns from investments."
Sources
2 independent publishers whose own reporting we read for this story.
- en.sedaily.comKorean Financial Holding Firms Post Record 17.6 Trillion Won Profit
1 article · October 7, 2026
- en.yna.co.krFinancial holding firms post record net profit in H1
1 article · October 7, 2026
- koreajoongangdaily.comKorean financial groups post record first-half profits as banks lead
1 article · October 7, 2026
Topics and entities
Topics
- South Korean financial holding companies
- Bank Delinquency and Asset Quality
- Bank capital adequacy and RWA management
Entities
- Hana Financial Group
- iM Financial Group
- Financial Supervisory Service
- Shinhan Financial Group
- Nonghyup Financial Group
- Korea Investment Holdings
- BNK Financial Group
- Woori Financial Group
- JB Financial Group
- KB Financial Group
- Bank for International Settlements
- Meritz Financial Group